Coliseum lease to USC unlikely to show paper profit, experts say

Francine Orr, Los Angeles Times

A proposed 98-year lease that would give USC control of the taxpayer-owned Los Angeles Memorial Coliseum promises the public a share of the money raised by events at the stadium, but many experts say that is no guarantee that the public will actually share in any profits.

A proposed 98-year lease that would give USC control of the taxpayer-owned Los Angeles Memorial Coliseum promises the public a share of the money raised by events at the stadium, but many experts say that is no guarantee that the public will actually share in any profits. (Francine Orr, Los Angeles Times)

A deal to give USC control of the taxpayer-owned Los Angeles Memorial Coliseum promises the public a share of the money from Trojan football games and other events the school stages there.

But in big-time college sports, such a commitment is no guarantee, experts say.

That's not because they expect USC to lose money as steward of the Coliseum and its bank accounts. The Trojan gridiron program is considered one of the most financially successful in the NCAA, with annual ticket sales alone hovering around $20 million.

The issue for the sports scholars is whether the private university would show a profit on paper, rather than use its earnings to make the Coliseum a nicer and nicer place for fans, advertisers, players and coaches.

Victor Matheson, economics professor at College of the Holy Cross in Massachusetts who specializes in the stadium business, said the public should not count on profit-sharing during the 98-year term of the proposed lease that the Coliseum has offered the school. USC could have numerous ways to pump extra cash into the 90-year-old Coliseum, he said — and for good reason.

"It's different from the typical business model," Matheson added. "You're not here to make a profit on the stadium. You'd much rather spend the money. Your goal is to maximize revenue and spend every dollar you can."

Upgrading seats and concession stands greases the turnstiles, Matheson said. And a robust schedule of improvements to the playing field, locker rooms and stadium offices eases the task of attracting the best players and coaches — the prime draws for ticket buyers and broadcast audiences.

Brad Humphreys, a sports economist at the University of Alberta, predicted "the stadium will never turn one cent of profit. … This is a sweetheart deal for USC."

He said it would be fruitless to project how much USC might make from the Coliseum because standard accounting practices are lacking in college athletics.

"Nobody has ever been able to figure out if a university makes money on a football stadium, but it is unlikely that any major university with a football stadium that size is making a loss," Humphreys said.

The lease could win final approval by a state board Tuesday.

USC strongly disputes the notion that it is getting a steal. Officials at the school note that the lease would require the university to put $70 million into Coliseum renovations during the first 10 years and an additional $30 million by 2054.

At the same time, USC would pay the state $1 million in annual rent — to be adjusted for inflation — plus 5% of the proceeds from the sale of naming rights to the Coliseum. If combined with other opportunities to advertise at the stadium, the naming rights should initially bring the school $4 million to $6 million a year, the experts say.

That could finance many of the refurbishments USC has pledged, although school administrators stress that the university must also pay for upkeep of the Coliseum.

The industry mavens say that, as a percentage of revenue, the maintenance bills for open-air bowls, especially in sunny locales — like the Coliseum — are small compared to those for more elaborate sports palaces. The Coliseum underwent more than $100 million in refurbishments after the 1994 Northridge earthquake, paid for by the government.

"I wouldn't think there would be huge amounts of maintenance costs," said Dennis Coates, an economics professor at University of Maryland, Baltimore County, who focuses on sports.

The Coliseum Commission moved quickly to negotiate a new lease with USC after a 2011 financial scandal erupted at the stadium complex, which also includes the Sports Arena. Three former stadium managers and three people who did business with the Coliseum were later indicted on a variety of corruption charges.

The scandal fueled criticism that the commission — a part-time panel of three representatives each from the city, county and state — had been a poor overseer of the Coliseum's books and fumbled when it came to selling naming rights. The commission defaulted on its commitment to pay for the restorations USC is now prepared to fund.

The stadium has lost money for a number of years, in part because it could not cover its expenses solely from football.

The commission has been receiving 8% of football ticket sales, with USC keeping the rest. The government has retained 100% of the concessions but paid half of the Coliseum's operating costs for football games.

Under the new lease, USC would foot the full operating tab but take all game-day revenue.

If the university reports a profit, the Coliseum Commission would get 5% of the first $2.5 million in net earnings. Its share would increase in similar increments to a maximum of 20% of profits in excess of $7.5 million.

A lease provision that the experts say is particularly favorable to USC grants the school the option to demolish the Sports Arena and replace it with a professional soccer stadium, perhaps for Chivas USA.

The franchise plays at StubHub Center, formerly Home Depot Center, in Carson, in the shadow of the venue's other team, the Galaxy. Chivas owner Jorge Vergara has told The Times he has discussed the stadium possibility with USC.

A Chivas spokeswoman said she had no new information about a prospective move to the Sports Arena site.

If a soccer stadium were built, taxpayers would get none of the revenue from it.

Supporters of the lease deal say the public would still benefit, because a soccer venue would generate economic activity in the area, starting with jobs.

But the scholars say that dividend is largely illusory. Sports stadiums usually shift consumer spending and the attendant employment from one part of a region — or from one entertainment sector — to another, the experts explain.

"You'll find the impact is very negligible," said Nick Watanabe, who teaches sports management at the University of Missouri. "It's more a game of checkers. You just move stuff around."